Jabong bangs into top rung of Indian e-commerce; Can it sustain?

Delhi-based media consultant Rama Lal (name changed) learnt about Jabong.com, an e-commerce website focused on lifestyle products, from her entrepreneur husband. And one early morning, she logged on to the site and ordered a pair of shoes. That was the first time she shopped on an e-commerce site and to her utter delight, by 5 pm on the same day, a Jabong delivery boy knocked at her door with the pair of shoes she had ordered in the morning. The shoes fitted her perfectly. Lal shared the experience with all her friends in office and it didn’t take long for Jabong to become the default homepage for many of Lal’s colleagues.

We are not making this up. Nor are we holding the flag for Jabong.com. The e-commerce portal, indeed, has this kind of effect on first-time e-shoppers like Lal. Jabong has been able to capture the imagination of an average Indian customer by offering a large catalogue of lifestyle products and a super-fast delivery service (same-day delivery in cities like Delhi) to boot.

Of course, Flipkart.com was the first to become India’s e-commerce darling after delighting customers with a clutter-free user interface, easy order placement and a 48-hour delivery schedule, which was unheard of till then in the Indian e-commerce space. If Flipkart has raised the bar for customer satisfaction for e-shoppers in India, Jabong has queered the pitch with aggressive marketing, same-day delivery and a wide array of product portfolio.

Interestingly, Jabong, which went live in October 2011, did all these within just six-eight months. It rolled out several categories like shoes, apparel, accessories, sports equipment, jewellery, beauty products, fragrances, home décor and toys in record time. The company also embarked on a huge mass communication campaign, created its own logistics network and ensured a significant presence in the market within a very short span while others took at least two-three years to build them up.

The result: Jabong has emerged as one of the top three e-commerce players in India in traffic terms. According to statistics by comScore, Jabong ranks second, after Snapdeal, with over 6 million unique visitors in June 2012. Flipkart, arguably the largest Indian e-commerce player by sales with monthly sales of about Rs 100 crore, comes third in traffic, according to June data.

Shock and awe

Jabong seems to be following a strategy of “shock and awe.” The company, backed by Berlin-based Rocket Internet GmBH – a venture arm of the Samwer brothers – which is known for cloning several successful online business models of the US in other markets, is reverse-engineering the success formula of Flipkart in India: Add as many categories as possible; acquire customers at any cost; build a logistics arm from ground up and delight the customer.

Jabong has been extremely aggressive in winning over customers while the company officials deny resorting to heavy discounts. “We focus on variety, widest assortment, fastest delivery time and excellent customer service rather than deals and discounts,” Manu Kumar Jain, co-founder and managing director of Jabong, said in an e-mail response to Techcircle.in. The company, which has its own warehouse, claims to deliver in top 10 cities within 48 hours and to other places within 1-3 days while it is delivering on the same day in metros like Delhi.

Getting bigger, quicker

Jabong is in a hurry in India. It wants to build a sizeable e-commerce company quicker even if that means it has to burn money to acquire customers and build up a costly warehousing, delivery and customer service infrastructure. According to industry sources, Rocket Internet has committed an amount in the range of $25-40 million for building out Jabong in India. Even though it is not a big sum, considering Jabong’s rivals are well-funded, the e-commerce portal has been able to shoot into the big league with relatively less capital at disposal. In contrast, Flipkart has raised about $100 million while Snapdeal has raised $60 million through multiple rounds of fundraising and are still in the market to raise money. Yebhi.com, another rival, has also raised about $30 million in multiple rounds.

According to industry grapevine, Jabong is estimated to be spending close to Rs 2,000 per customer in acquisition costs. The average customer acquisition cost online is Rs 1,500, according to a study by Zinnov, a management consulting company catering to Fortune 1000 companies. When contacted, Flipkart declined to reveal its customer acquisition cost while Snapdeal did not respond to our calls and text messages. But for now, it’s certain that almost all e-commerce companies are losing money on every transaction.

Says Mahesh Murthy, an e-commerce investor and partner of early-stage venture capital firm Seedfund, “Jabong has done to Flipkart what Flipkart has done to other e-commerce portals. Enter a market, spend outrageous amounts of money for customer acquisition and build revenues.” Jabong is estimated to have budgeted Rs 75-80 crore for online advertising and is currently burning around Rs 5 crore a month.

However, Jabong has denied all industry-estimated figures in response to a detailed e-mail query sent by Techcircle.in.

Can it sustain?

But how long can Jabong continue to burn money and sustain the momentum? Says K Vaitheeswaran, founder and CEO of Indiaplaza, one of the oldest horizontal e-commerce players, “Customers are, by nature, the most disloyal entity. For any e-commerce player, acquiring customers might be easy but retaining them is not.”

Even venture capitalists – who usually believe in the route of building companies ground up, spending huge money – disagrees with Jabong’s approach. A venture capitalist with a leading firm says that India is not a market where one can build a “sustainable” business “aggressively.” He doubts whether such spending can go on for long and is unsure if customers acquired in such a way are really the right ones since they have been lured by discounts and vouchers in the first place.

Mukesh Bansal of Myntra.com, which is the direct rival of Jabong in terms of product categories, adds, “Just offering discounts and vouchers is not a sustainable strategy. If one has a unique proposition to offer, then e-commerce is a big sector for everyone to have a share (of the market).”

Besides customer acquisition costs, building own logistics force may also turn out to be counterproductive in the long run even though it is helpful to build the market in the short term. Says Percy Avari, regional manager of Aramex (South Asia),a leading logistics and supply chain company, “Building and maintaining a large logistics staff is not sustainable if it’s not your core business.”

Jabong’s India structure

Jabong is owned by Gurgaon-based Xerion Retail Pvt Ltd, which also owns the portal FabFurnish.com. Rocket Internet has backed Xerion, but how that has been legally structured is not known since foreign investment in multi-brand retail is not allowed in India. Rocket Internet has also invested in HeavenandHome.com in India.

The Samwer brothers

Interestingly, Jabong (like any other Rocket Internet business) is built by consulting people, rather than hard core operations professionals. The top three people at Jabong are Manu Kumar Jain, Praveen Sinha and Arun Chandra Mohan – all of whom share the same designation: Co-founder and managing director. According to an employee, who requested anonymity, Jabong does not have a CEO. All three founders have distinct roles, though. Jain, who was an engagement manager at McKinsey & Co from May 2007 to December 2011, looks after marketing and brand building, and is the lone spokesperson for Jabong. Sinha, responsible for overall operations, was also a consultant with McKinsey prior to Jabong. Mohan, who is in-charge of sourcing, was a venture partner with Rocket Internet for almost a year and prior to that role, was a senior market analyst with IT research firm IDC.

Globally, Rocket Internet has always hired “consulting types” from firms like McKinsey, Boston Consulting Group or Goldman Sachs. German magazine Der Spiegel says in a feature on the Samwer brothers, “These are the types of people who are accustomed to putting a clearly delineated plan into practice, rarely complain about having to work overtime and don’t want too much freedom.”

That is the Rocket Internet DNA – reflective of the Samwer brothers’ approach to business – which is “cold, hard and dismissive,” as the magazine described. They don’t usually take in the “creative types, tinkerers and nerds.” According to a CEO of a leading Indian payment company who had interacted with some of the Jabong executives, “They are extremely aggressive and are focused on getting the work done. They have a plan B if plan A does not work and a plan C also, just in case plan B does not work out.”

The company works out of its sprawling office premises at Udyog Vihar in Gurgaon, which also house other ventures such as home décor portal Heaven & Home, stationery shopping site OfficeYes, as well as FoodPanda, PrintVenue, FabFurnish and 21Diamonds, all promoted by Rocket Internet in India. Rocket has 59 companies worldwide and is present in 40 countries. It operates through several entrepreneurs in residence (EIR) and venture development managers in India who are constantly evaluating opportunities in the Indian Internet space and are ready to take on executive positions when the businesses roll out.

Jabong is the biggest bet of Rocket in India. Going by the Samwer brothers’ track record, they don’t stay in a business for long. Either they sell out quickly to a direct competitor or a strategic buyer. For instance, the Samwer brothers started with Alando, an eBay clone, which they sold to eBay itself for $50 million in just three months after the launch of the website in 1999. Most recent example is of the sale of Citydeal, a Groupon clone, to Groupon itself in return for an estimated 10 per cent stake in the Chicago-headquartered deals company. But India is a different kettle of fish with customers more enticed by discounts and deals rather than convenience, as in other markets. Whether Rocket will continue to burn money till it sees the endgame remains to be seen.

27 Comments

I heard from a person working in Jabong that Rocket Internet has gently (or strongly) nudged jabong to start generating some money or else be ready for ….

Rahul August 1, 2012 23:03

Employees are leaving Jabong at greater pace. Jabong is also firing like mad. This business model will not sustain in India. Also one of the insider has told us that there is no defined hierarchy in the organization which is discomforts existing employees. Also he mentioned that no. of orders are not in proportion with there spends. Lot of issues regarding authenticity of products has also surfaced.

Sahad P V August 1, 2012 23:35

Isn’t that true for some of the top ecom companies? Fast paced execution companies will demand fast paced work and results leading to attrition.

Aditi August 2, 2012 2:49

I’ve heard a ton of horror stories about Jabong’s supply chain management system. I personally know atleast 5 people who have received wrong orders. I dont think e-commerce in India will succeed until the supply chain is improved. Good luck to the investors!

A Kumar August 2, 2012 9:25

I stopped reading your post the moment I came near the quote from someone from IndiaPlaza about cusomters. Ask the guy what “customer experiece” and “customer frustration” is. I guess he doesn’t have a clue or he is too sheepish.

Here’s a hint, I have a repulsive urge whenever I, now, see an IndiaPlaza ad on any wbesige; leave alone looking at its website.

Arun August 2, 2012 13:46

Whenever my girl friend wants to buy something, she will compare prices at several sites like jabong, yebhi, flipkart, infibeam, bla bla bla….i dont remember the name of all sites. she will buy from the site which has a cheapest price of that product. There are no loyal consumers in india. some1 should scrap prices from all these websites and build a product comparison portal.

Abba Jaan August 2, 2012 14:18

This article is a paid article. PERIOD

Vinay August 2, 2012 15:09

Jabong has a young founding team but possibly the best leadership team among the top e-comm players I have met- smart, aggressive, unafraid to make mistakes.

I do not think the big e-com players like Flipkart, Snapdeal or Jabong will be able to generate profits even in 5 years from now the way they are spending money in a market which is only driven by ‘PRICE’ factor

Sandeep August 3, 2012 10:13

Hi Guys Nice Post, im sure that Jabong can never sustain ! i dont know wether this is a original post or promotion post ! in Entire india Lal may be a Happy Person, here i can show u Live nearly 92 people Who are Happy & Unhappy about Jabong.com http://www.mouthshut.com/product-reviews/Jabongcom-reviews-925660222 yeah i agree Abba Jaan this is a paid article

Sunny August 3, 2012 11:23

paid or unpaid..your article needs to substantiate the claims you guys make right from the marketing budget, CPA (customer acquition costs) etc quoted all are simply based on false assumptions or basis rumours prevelant in market..
Better try speaking with Manu Jain himself on this..

John August 3, 2012 14:26

As a customer, I was delighted with the delivery speed of jabong. Ordered a linen shirt last summer and exactly with in 24 hours the shirt reached me at my Bangalore office. It took me 2 followup mails and 7 days to get a digital camera to get delivered(paid online) for my sister’s birthday via flipkart. I hope they will survive along with myntra and flipkart.

The comment from Indiaplaza and aramex is in line with what is expected from a competitor

Roshan August 3, 2012 18:00

Of course jabong can sustain its growth.They have the best delivery service in the whole of india.their delivery time is ridiculously fast and that is their USP.

Shilpa August 5, 2012 22:28

After checking upon their delivery services and the dedication they are showing towards their customers i believe that they will be able to become No.1 fashion apparal store in india.

Khushi August 5, 2012 22:30

They are doing well in acquiring customer but the main point is whether they will be able to come sustain or not.

Prachi August 6, 2012 10:58

Unlike other countries, rocket internet has to wait and make jabong a very strong online portal if they want to repeat the history of selling its entities to direct competitors

Garima August 6, 2012 11:01

Running an online portal in India is completely different in comparison to other countries.

Ruchi Prasad August 6, 2012 13:58

Investors should be wary of this company as internally everything is broken. While there are orders being delivered on one side, there are so many customer complaints with wrong and broken products. It is OVER PRICED and the management is UNPROFESSIONAL….

Rijuta Mittal August 6, 2012 18:41

Well i agree with roshan.They delivery just sets them apart.Delivery in one day is unprecedented in this or any system. Also cash on delivery and card on delivery make for very trustable online shopping. People will keep on shopping and screaming

Anisha August 9, 2012 12:12

Aggressive execution of plans is the USP of A-Rocket. The same they are doing in jabong

Shagun August 9, 2012 12:19

The most important fact about jabong is it is backed by one of the experienced and suceesfull online business group – A Rocket internet

Bijoy August 9, 2012 17:09

ANKIT is right I don’t think any e-commerce site can generate profits in the first few years.They have to build a customer base first and maintain their trust. They have to spend a lot of money initially at advertisement and establishing appropriate supply routes and stuff.I don’t think they are even looking at breaking even right now.

Rahul August 10, 2012 20:57

It is all about building a brand . Jabong has the money to build a brand.
Customers with good experience would usually never go a blog to share their experiences .
I my self had ordered shoes from Jabong and I got my pair in 2 days .

Gaurav August 11, 2012 1:41

Well I had ordered a Shirt from Jabong at 10:45 AM and to my amusement the delivery boy came knocking at 4:30 PM the same day….I wudn’t mind even paying 200 bucks extra if the service is this grt but delightfully its free (unlike sites like Fashionara who deliver the same day only in bangalore that too with an extra charge of 199 bucks)…..I am a regular customer of Jabong since February and I must say their services (delivery and customer care) are only getting better

these guys are already facing lawsuits and complaints due to non-payment to vendors and also to some employees. Rumor is that the promise equity to co-founders and then go back on their words. Jabong is currently facing a lawsuit potential for cheating someone of promised equity